What should you know about cosigning before you offer to cosign?

BadCreditAdviser

When any of your friend or relative approaches you to cosign the loan, you need to consider certain factors before committing to support the friend. You should first understand whether the one whom you are about to support to get the loan, has enough means to repay the loan. When the lenders are not convinced of the reliability of personal loans bad credit applicant due to bad credit history, it is required by the lenders that the loan applicant gets a cosigner with good credit ratings. By cosigning the loan, you become responsible for the loan in case the prime borrower defaults.

Why is a cosigner needed?

If a person with poor credit needs funds to purchase a home or a vehicle or if he is in need of funds for treatment or to meet the education expenses of his wards, he might need the help of a cosigner. It should be understood that as a cosigner, you have to assume complete responsibility to repay the loan amount in case of default by the primary borrower, although you do not have any share of the property purchased. You are committed to pay the loan along with the interest rate and other charges such as penalty for late payments and service charges.

Commitment to a loan affects your credit score even if you are only a cosigner. With affected credit score, it becomes difficult for you to obtain loans in future when your financial needs compel you to look for loans. So, you might be denied financial support when you are in need of it. Submitting collateral for the loan is also not suggested by the financial advisors as there is the risk of losing the property as well. You need to be in frequent touch with the lender to verify if the primary borrower follows the repayment schedule.

You have to secure the documents or the records of the details of the loan for which you have cosigned. This will avoid unnecessary confusions. Although cosigning indicates your concern for your friend, you should see to it that it does not affect the relationship. If you are supporting a reliable friend for a genuine cause, it should be appreciated. However, it is necessary that you go through the fine print of the loan agreement carefully before signing the loan agreement. A clear understanding of the loan terms could help avoid unnecessary problems.

If the prime borrower is not able to repay the loan for some reason, you must be in a position to clear the loan. Your loss could be temporary in case your friend is able to repay the money to you at a later period. This is possible only if you have enough resources to settle the loan. Otherwise, you will land in trouble. The situation worsens in case you become jobless. Although you intend to help a person to borrow, it should be done only if you are comfortable enough to withstand the loss in case of default by your friend.